Defining credit dislocation

COVID-19 sent shockwaves through the credit markets exposing their fragility. Is now the time to invest? Our credit experts think so, learn more from our latest webinar.

Hedge funds 26 May 2020 19 min read

The unprecedented economic shutdown resulting from the COVID-19 outbreak has exposed the fragility of the credit markets, resulting in dynamic volatility across the asset class. Repricing of credit assets may create opportunities for proactive investors to capitalize on dislocations in the market, but active management and asset selection are crucial to the investment process.

Key webinar takeaways

  • March's indiscrimate selling in credit markets was followed by unprecedented policymaker support and technical challenges, leading to an uneven recovery and opportunities in dislocations.
  • We believe the best opportunity set in the slowing economy is in levered loans, CLOs, energy credit MBS and single thematic idiosyncratic situations.
  • Downgrades will likely lead to forced selling within CLOs, creating opportunities for rules-based investors to capitalize by purchasing loans of quality companies at steep discounts.
  • The ability to select survivors in energy versus those likely to default will be critical as we see opportunity to step in at attractive prices.
  • Deploying fresh capital has its advantages rather than investing in existing portfolios, alongside existing investors with different economic expectations and liquidity needs.